Rev Ruling 98-1 re 415 limits after GATT & SBJPA

[Lorraine Dorsa]

At last week's ASPA meeting, Jim Holland spoke on Rev Ruling 98-1. All of those I spoke to who attended the session, including myself, are just as confused as we were before about exactly what options are available, how to select which option is best for a particular plan or participant, how to calculate the benefits described and how to write these rules in a document. I would like to hear from others, whether or not you attended the session, about how you are addressing this issue.

[Guest Muaddib]

I have been calculating IRC 415 limitations for terminating plans for our company for the past 15 years, I have not had much problems in applying the new rules of Rev. Rul. 98-1.

Our actuary has had several discussions with Jim Holland regarding 98-1, and he attended the session (I missed it, I attended one of the other sessions on 401(k) plans). According to our actuary, there was nothing presented in the session which we were not doing already, we have a pretty good handle on 98-1 with regards to the pre-GATT/post-GATT options and how to apply them to our plans. I have gotten IRS approval on numerous IRC 415 calculations, I prepare on the average about 10 DB plan termination 5310 filing per month.

I could discuss any particulars with you if you wish, I can be contacted by email at qbert1@earthlink.net (I am currently studying for my final enrolled actuary exam so I may not respond immediately, my exam is on Nov. 16).

[Guest Harry O]

I'm not sure what you are asking. Just what is it about 98-1 that you are concerned with?

[Lorraine Dorsa]

My concern is with ongoing plans and what benefits are protected, how they are protected and what is reasonable for funding purposes?

For example, as of 12/31/99 (assumed freeze date), a participant has an accrued benefit under the plan formula of $10,000/month, NRA=65, AE = 5% 1983 GAM (blended). Final implementation date is 1/1/00 and plan selects frozen + future method. As of 12/31/2000, his accrued benefit under the plan formula has increased to 415 $ limit, assumed to be $10,500. 2000 GATT rate = 6%.

What is the lump value of his benefit on 12/31/00? Is it 1) the sum of the present value of $10,000/mth @ 5%/1983GAM + the present value of $500/mth @ 6%/1983GAM or 2) the preceding amount, but not more than the present value of $10,500/mth @ 6%/1983 GAM?

How do I fund for this benefit if he is going to retire in 2005 and is expected, as many small business owners do, to take a lump sum? Should I assume his benefit will be worth 1), 2) or 3) a lump sum computed at what I expect the GATT rate to be in 2005?